Hudgins joined Western-Shamrock Corporation in 2007 as vice president of operations and was promoted to president and COO in 2011. Hudgins is directly responsible for all operations of the company and for recruiting and maintaining the management team. He also plays a lead role in the company’s regulatory and governmental relations department.

Hudgins currently serves as the president of the Independent Finance Institute of Oklahoma and serves on the board of several other state associations as well as the National Installment Lenders Association.

St. Charles joined Pat St. Charles Company, a family real estate business, in 1975 and was primarily involved in real estate management and appraisals from 1975 through 1982, then commercial real estate brokerage and management from 1982 through 1992. He was elected to Citizens Savings & Loan Corp.’s board of directors in 1979 and appointed treasurer in 1992. He was elected to chief executive officer in 2003, then president in 2009.

St. Charles is currently president of the Tennessee Consumer Finance Association. He is past president of the Chattanooga Association of Realtors 1990 and former president of the Southeast Tennessee Certified Commercial and Investment Member Real Estate Council. St. Charles served on the AFSA Independents Section Advisory Board from 2011 to 2014.

Stanutz is managing director of one of Huntington’s five major lines of business, which includes auto finance, asset based lending and the commercial real estate group. These three business groups combined account for approximately 30 percent of Huntington’s total loan and lease portfolio. Stanutz has been in the banking industry for 36 years and with Huntington 28 years.

He is a member of the bank’s executive leadership team and is nationally recognized as an industry leader in auto finance. He was the chairman of the Consumer Bankers Association Auto Finance Committee from 2000-2005. He has been a member of the AFSA Vehicle Finance Board since 2012 and is an active member of AFSA.

Stuart leads all aspects of TD Auto Finance in the U.S. Prior to his current role, he was president and chief executive officer at VW Credit. During the past 20 years, Stuart has held various positions of increased responsibility in the automotive field. He started his career at Volkswagen Group Canada as a district manager in the Atlantic Provinces. Since then, he has held various management positions with the Volkswagen Group, in sales, marketing, product planning and financial services.

Stuart was a member of the AFSA board from 2009 to July of this year and the AFSA executive committee from 2012 to 2014 while employed with VW Credit, and also served as the AFSA Vehicle Finance Division chair from 2012 to 2014.

In addition, AFSA welcomed three replacement members to its board of directors:

— Don Gottwald of KAR Auction Services has relinquished his AFSA board seat due to increased responsibilities. John Hammer, chief executive officer and president, Automotive Finance Corp. (AFC) will take his place. As CEO, Hammer is responsible for the strategic leadership of the company’s objectives and growth. He joined AFC in April 2009 as chief operating officer, and assumed his current role in March of this year.

— Andrew Traeger of John Deere Financial has relinquished his AFSA board seat due to increased responsibilities to Matthew Haney, deputy chief counsel of John Deere Financial. Haney is responsible for legal services for John Deere Financial in the U.S. and manages its litigation, compliance, archival services and financial services knowledge center groups. Following graduation from law school, Haney joined Lewis, Rice & Fingersh in Kansas City, where he practiced law for five years. He later became chief legal and compliance officer for Aviva Investors North America, Inc. and vice president, corporate legal & government and regulatory affairs for Aviva USA Corporation. He worked for Aviva and its predecessor companies for 18 years. He joined John Deere Financial in 2013 in his existing role.

— Robert Carter, president & CEO, Regency Finance Co., is stepping down from the AFSA board of directors and will be replaced by Jeffrey Chepkevich, senior vice president and director of operations at Regency Finance. Chepkevich joined Regency Finance Company in April 2012 with more than 25 years of experience in the financial services industry, with additional work in the mortgage and retail banking areas. He spent the majority of his career, from March 1987 through May 2009, with Beneficial Consumer Discount Co./Household Finance Corp., a subsidiary of HSBC Bank. Chepkevich is a member of the AFSA Independents Section Advisory Board and the AFSA Operations & Regulatory Compliance Committee.

The companies highlighted dealers using both systems now can benefit from a real-time, bi-directional exchange of information that’s intended to speed up the F&I process, keep transaction data and contact information accurate, improve customer satisfaction and increase profits.

Auto/Mate Dealership Systems president and chief executive officer Mike Esposito says his solution is designed to be a user-friendly, flexible solution with more than 20 modules to serve every departmental need.

Plus, he said MaximTrak can allow data to be saved as a presentation progresses, eliminating the need to re-type information and allowing for a branded presentation with custom graphics and color design.

“Our focus is on creating a better buying experience for the customers, which is accomplished by the professionalism and speed of our F&I menu and reporting solutions,” Maxim said. “Having our product suite integrated with a dealer's DMS eliminates redundancies and errors caused by incomplete transfer of information.”

The executives pointed out both Auto/Mate and MaximTrak are integrated with credit bureaus and can offer advanced, easy-to-use reporting capabilities.

Vendor Transparency Solutions and Weltman, Weinberg & Reis are joining forces again for another free webinar — this time focusing on what the Consumer Financial Protection Bureau’s larger participant rule proposal means for nonbanks in the auto financing market.

Partner Michael Dougherty plans to ask two important questions: Are you now regulated by the CFPB, and, if so, what does it mean?

“The CFPB recently announced its proposal for defining who is a larger participant in the automobile financing market,” Dougherty said. “The proposal sets forth who is now a CFPB regulated entity and defines the scope of potential oversight and regulation.

“The CFPB proposal addresses issues surrounding buy rates and any discretionary dealer markups to the buy rate. It further sets forth the roadmap for lenders to use when establishing their dealer management compliance system especially as it relates to the ECOA and UDAAP,” he continued.

“The comment period for this proposal will end quickly, so understanding how this new proposed regulation will affect your business model is of great and urgent importance,” Dougherty went on to say.

It’s been nearly two weeks since the Consumer Financial Protection Bureau revealed its proposed changes for what is classified as a larger participant in auto financing. More than half the time is remaining in the 60-day comment period the CFPB has in place. Still, auto finance legal expert Michael Thurman isn’t expecting dramatic changes from what the bureau outlined during its field hearing last month.

“I’m aware of no obstacle that would prevent the CFPB from implementing this rule,” Thurman told SubPrime Auto Finance News. “The way the process works, the agency will take comments from all sources including consumers, the industry and legislators. But at the end of the day, the CFPB has spent a significant amount of time making its determination of what an appropriate level is to set the barrier for being a larger participant. The agency has the authority to do that under the Dodd-Frank Act. I don’t expect any substantial changes to the rule from what we’re seeing. In fact, I’d say there’s a good chance that the rule we’re seeing now will be the rule that’s adopted.

“That doesn’t mean the agency won’t consider the comments that are made, but I don’t see them making any significant alterations in for example the definitional changes their proposing or the calculation by which they’re going to determine larger participants of this industry,” continued Thurman, a former partner at Loeb & Loeb who opened his own firm in Pasadena, Calif., earlier this year.

To recap, if a finance company makes, acquires, or refinances 10,000 or more vehicle loans or leases in a year, the CFPB is looking to become that operation’s primary regulator stemming from a proposal disclosed during a bureau event on Sept. 18 in Indianapolis.

The bureau said this proposed rule would generally allow the CFPB to supervise nonbank auto finance companies to ensure they are complying with federal consumer financial law. Bureau officials estimated that about 38 auto finance companies would be subject to this new oversight.

Organizations such as the American Financial Services Association didn’t need 60 days to make a comment. Senior vice president Bill Himpler was part of a panel discussion during last month’s field hearing and made concerns known immediately.

“AFSA remains concerned that the bureau continues to issue larger participant rules that capture market participants that, for lack of a better term, are not large by any stretch of the imagination,” Himpler said.

“Many of the market players that will be subject to the proposed rule have well below 1 percent of market share. According to Experian data, companies below the top 30 have less than a half a percentage point of market share in vehicle finance,” he continued.

“Above all, the vehicle finance industry wants to comply with the law and the regulations that are set forth by the bureau, as well as continue to play a positive role in the American consumer experience. Industry stands ready to work with the CFPB to develop regulations that protect consumers and simultaneously ensure that Americans have access to safe and affordable consumer credit,” he went on to say.

Despite the objections, Thurman acknowledged the latest moves the CFPB made were not unexpected.

“It’s something that we’ve been looking for since late in the spring when the CFPB indicated it would heading in this direction. And even going farther back to 2012 when it initially announced the direction it was heading with respect to indirect lending and its fair-lending practices in the fact that they view it as applicable to loans that are being done by dealers that are ultimately financed by auto lenders,” he said.

Thurman did mention one expectation he said wasn’t met by the CFPB in its latest action. He was looking for an addition section to the bureau’s supervisory manual that would assist finance companies in knowing exactly what regulatory concerns are covered with respect to auto lending. Thurman suggested the CFPB will continue to focus on several areas of its current manual that are connected to unfair, deceptive or abusive acts or practices (UDAAP), credit reporting, fair lending, debt collection and truth in lending.

“It would have been great for the industry if the agency had come out with a specific set of guidelines that accompany this announcement because then I think they can focus even further on what they need to be ready for an examination,” Thurman said.

Without more specifics, Thurman recommended that finance companies continue to enhance their compliance programs.

“Hopefully, they all have been already bracing for not only this announcement, but also bracing for supervision by the agency even in the form of subpoenas or civil investigative demands. Obviously the auto finance industry has known for some time that the CFPB has some jurisdiction over the industry. The only new news here is which companies, in particular, will be subject to onsite examinations on a periodic or regular basis,” Thurman said.

Thurman speculated that larger finance companies likely have been dissecting the CFPB supervision manual, spending a significant amount of time in discussions with their attorneys and compliance staff, building out procedures to make sure they comply with the CFPB rules.

“The difficulty may be for some of the companies that are closer to the line, but my hunch is that’s a relatively small number of companies that have been identified for supervision. My hunch is every company in that group probably assumed they were going to be included in this process,” Thurman said.

“I don’t expect any of them will slow down on their efforts to build out their compliance management systems,” he continued. “The fact that this announcement has been made tells everyone that the time is coming very soon when they’re actually regulators coming to visit them. The efforts that they have been doing are going to have to be as far along as they can be.

“If I were going to give advice to companies that find themselves within the group that will be subject to onsite examinations, I would tell them to keep the pedal to the metal in building out their compliance management systems and continue doing the things they’ve been doing for the last few months and years,” Thurman went on to say. “Don’t slow down in terms of preparations for when the CFPB actually shows up at their door.”

A way finance company executives can keep the “pedal to the metal” as Thurman indicated is by attending this year’s SubPrime Forum during the opening days of Used Car Week.

One of the presentations during the SubPrime Forum — an event orchestrated in partnership with the National Automotive Finance Association — is from the team at McGladrey, which is gathering together strategy recommendations to enhance regulatory compliance moves executives might have already put in place.

McGladrey will be conducting a session during the SubPrime Forum where attendees can learn how to implement, maintain and provide governance oversight for their compliance management system based on the latest mandates issued by the bureau, which is taking a hard stance on this issue based on the enforcement actions the agency has taken during the past year.

Attendees will leave the Red Rock Casino, Resort and Spa in Las Vegas with a plan of action for when — not if — the CFPB arrives ready to conduct a thorough investigation.

The SubPrime Forum begins Nov. 10 with registration and a welcome reception before launching into a full day of events on Nov. 11, followed by a half-day of sessions on Nov. 12.

The Consumer Financial Protection Bureau is insistent that finance companies have documentation verifying the federal compliance of their service providers. For managers that use Allied Finance Adjusters member repossession agencies to find and recover vehicles, a new partnership with Vendor Transparency Solutions is aimed at enhancing what a finance company can show federal regulators.

For some time, AFA maintained its compliance module on its website that assisted its members in sharing compliance documents with finance companies. On Wednesday, AFA and VTS finalized a partnership that designed to take that process many steps higher.

With the introduction of VTS Basic, AFA can now offer our members a platform geared to reach a higher level of compliance. This new software can provide members with more functionality and features, including the VTS Marketing Module, VTS Complaint Handling Module and VTS Continued Education Module to give members exposure to finance companies that utilize VTS Professionals.

“Since the inception of the CFPB, AFA has positioned its members to be the most educated operators in the recovery industry. Working with VTS gives AFA proven tools to show the lending community that AFA and its members are taking compliance seriously,” said James Osselburn, second vice president of Allied Finance Adjusters.

Through the partnership, AFA members can receive exclusive discounts on all VTS services, which consist of VTS Professional, VTS Basic and ongoing continued education.

Additionally, AFA has contracted VTS to perform the site inspections and other due diligence required to become a new member of Allied Finance Adjusters. AFA officials insisted that utilizing VTS to perform these inspections is important when it comes to vetting new members as “the high caliber of VTS will insure to the lending institutions that the members of AFA are held to a higher standard.”

New members of AFA will receive an even greater discount on VTS Basic, should they choose to participate.

Allied Finance Adjusters is one of the leaders among national trade associations in CFPB compliance training and education through its relationship with Recovery Specialist Insurance Group (RSIG). To date, 90 percent of AFA members have completed this training.

Vendor Transparency Solutions president Max Pineiro explained this partnership demonstrates AFA's commitment to be the largest group of bonded, compliant service providers in the nation, which can create new revenue opportunities for members by creating a one-stop shop for all financial institutions, banks, credit unions, law firms and replevin brokers.

Pineiro added the AFA Education Committee will be working closely alongside VTS on its continuing education module to introduce new ideas on education for AFA members and VTS subscribers.

“There is no question that mastering compliance requires a team effort. That team includes the financial institutions, their contracted service providers and the leaders of the industry trade associations that assist their members through valuable tools and benefits,” Pineiro said.

“The most valuable tools today are those that are closely related to compliance and compliance monitoring,” he continued.

“We at VTS applaud Allied Finance Adjusters for taking on the leadership role in the industry and assuring that asset recovery businesses throughout the country have access to the necessary tools needed to achieve compliance," Pineiro went on to say.

— Rick Hackett, former CFPB assistant director in the Office of Installment and Liquidity Lending Markets

— Michael Benoit, senior partner in Hudson Cook’s Automotive Finance Group and a member of the firm's regulatory enforcement team

Morris recently joined Hudson Cook after three years with the CFPB where she was responsible for overseeing investigations and litigation relating to consumer financial products and services. Prior to her time at the CFPB, Morris was an assistant director and senior attorney in the Division of Financial Practices at the Federal Trade Commission.

Winston's responsibilities at the FTC focused on the oversight of civil enforcement actions and investigations, including litigation and leading settlement negotiations.

Hackett's responsibilities at the CFPB included leading and managing a team responsible for advising the bureau on auto financing market information and policy issues.

“The Consumer Financial Protection Bureau's new larger participant rule for auto finance will subject larger auto finance companies to supervision by the CFPB,” NAF Association executive director Jack Tracey said. Those attending the webinar will learn about the new rule and what auto finance companies can expect to experience in a supervisory exam.

“The webinar will also cover the CFPB's enforcement activities and how its enforcement authority complements its new supervisory authority,” Tracey continued. “The panel of experts will provide insight into the exam process and discuss recent enforcement actions and their implications for the auto financing industry.”

Northwood University and EFG Companies recently formed a national partnership to drive what they’re calling a greater opportunity and development of tomorrow’s retail automotive leaders.

Under this new agreement, EFG and Northwood University say they will “pave the way for future generations to leverage the hard-fought learnings of today and evolve business practices to successfully navigate the changing dealership landscape of tomorrow.”

Northwood University has also granted EFG Companies a seat on its National Automotive Marketing Advisory Board to represent the F&I sector of the automotive industry.

“During this time of increased compliance oversight and economic recovery, it is imperative that we provide the auto retail industry with individuals equipped with leadership capabilities, and who can analyze current market trends to evolve their business for future success,” said Keith Pretty, president and chief executive officer of Northwood University.

“Our partnership with EFG Companies adds to Northwood University’s ability to prepare our students for a career in this critical U.S. industry,” Pretty added.

Pretty also highlighted this partnership will allow both organizations to leverage the experience and knowledge of Northwood University’s dealer alumni, and EFG’s national dealer network for the benefit of the university’s student base.

As the industry continues to rapidly evolve, EFG Companies president and CEO John Pappanastos insisted this essential think tank will help drive innovation and cultivate adept leaders to challenge the retail auto industry to new levels of growth and profitability.

“Since 2008, the industry has gone through rapid, and, at times, painful change,” Pappanastos said. “The Great Recession forced dealers to significantly improve their operations, adopt new technologies and become much more analytical. There is no question that dealers today face an entirely different level of complexity than previous generations.

“Our partnership with Northwood will help our future industry leaders tackle growing issues like the evolving sales processes, the optimal management of digital assets, the increasing role of consumer protection products in the dealership profit model and heightened regulation,” he went on to say.

Both the EFG leadership team and the Northwood University faculty will provide input and guidance to ensure that Northwood students experience the continued benefit of the most relevant and thought-provoking retail automotive curriculum available in the U.S.

In addition, EFG will provide internship and employment opportunities within its franchise dealer base as students seek to apply their classroom experience to “the real world.”

The ongoing debate over how the F&I process should unfold inflamed again in the heart of the Midwest.

As consumer advocates and attorneys made scathing accusations about unscrupulous activities that amounted to practices such as payment packing, yo-yo financing and spot delivery, representatives from the American Financial Services Association and the National Automobile Dealers Association pushed back against those charges and more during the latest auto finance field hearing hosted by the Consumer Financial Protection Bureau.

CFPB director Richard Cordray opened the event by recapping the series of moves the bureau made in advance of the event at Hine Hall Auditorium on the Indiana University – Purdue University Indianapolis campus. Cordray reiterated his stance about how vehicle purchases — especially transactions involving consumers with subprime credit histories — must be completed in a transparent way that complies with federal regulations.

“It is important that the financing of these purchases does not come at an unjustifiably high cost,” Cordray said. “The Consumer Bureau will continue to work to ensure that people can get fair access to credit, on terms that reflect their actual creditworthiness, that marketing is honest and factual, that the terms of the deal can be made plain and readily understood, that companies are not furnishing wrong information about their customers, and that people are treated with respect and dignity in the debt collection process.”

Following Cordray’s prepared remarks, the event moved on to a panel discussion that included about a dozen individuals, including AFSA executive vice president Bill Himpler and Paul Metrey, who is chief regulatory counsel for financial services, privacy and tax for NADA. The remainder of the panel also included Consumer Bankers Association general counsel Steve Zeisel, CFPB officials, Center for Responsible Lending senior vice president Chris Kukla and Chrystal Ratcliffe, president of the Greater Indianapolis Chapter of the National Association for the Advancement of Colored People (NAACP).

In structuring questions, regulators often referenced the rise in subprime lending, even though finance companies’ appetite for subprime risk appears to be waning, judging by the softening trends Experian Automotive earlier this summer. According to its latest State of the Automotive Finance Market report, Experian determined that the percentage of new-vehicle loans to subprime and deep subprime borrowers began to level off in the second quarter.

“There may be an uptick in lending to subprime customers, but that’s not necessarily a bad thing,” Himpler said. “We need to remember that credit is an opportunity. What the uptick demonstrates is that following the crisis lenders are willing to, based on performance, go deeper to help folks who need access to transportation to get to jobs. Nobody would question extensions of credit to someone who is carrying around a (Black American Express) card, but in the subprime space we don’t have any problem talking about wanting to ratchet back because they may be taken advantage of.

"At the same time as regulators you need to be diligent to be sure that they’re treated fairly. But we do need to remember we’re a credit economy going all the way back before our country was founded. Credit is a good thing. It helps people build wealth, get jobs and we can’t lose sight of that,” Himpler went on to say.

In their prepared remarks, both Himpler and Metrey emphasized how much AFSA, NADA and their members are against discrimination of any kind, regardless of credit status, ethnicity or gender. But the final hearing attendee given an opportunity to make a two-minute statement offered one of the most predatory accusations of the entire two-hour event.

Judith Fox now is a clinical professor of law at the University of Notre Dame School of Law and also runs the Economic Justice Clinic for impoverished consumers in Indiana. While her biography and resume on the school website doesn’t list specific organizations, it does state that prior to attending law school, Fox was a loan officer at banks in both Pennsylvania and Indiana.

“I became a lawyer because before I was a lawyer I bought loan paper from dealers,” Fox told the audience. “We used to have a game in our office that when we looked at the interest rate that came in to guess the race and sex of the buyer. And we were never wrong.

“If it was over 20 percent, it was an African American woman. If it was 7 percent, it was a white male. That’s why I became a lawyer,” she continued.

“If you want to know what consumers need to know when they go into a dealer, they think they’re going into a loan broker who is doing the best they can to get them the cheapest rate. They need to know who their loan was shopped to, what rates they were offered, what rates you’re giving. Dealers need to make money, and I understand that. But the consumer needs to know they could have gotten a 7 percent loan, but you’re going to give it to me for 12 percent,” Fox went on to say

Incidents like what Fox alleged are part of the reason why Cordray and the CFPB are targeting dealer markup so strongly.

“And in our supervisory experience, we have found that when an indirect lender has a policy allowing the dealer to use its discretion to mark up the loan without regard to the actual credit profile of the consumer, and to benefit from that markup, the risk of discrimination increases,” Cordray said.

“Whether this is done openly and expressly, on the one hand, or silently and implicitly, on the other hand, does not change the fact that the consumer has been financially disadvantaged in violation of the law. Unbeknownst to the consumer, the discretion to charge distinctly different rates can dramatically increase the risk of unlawful discrimination,” he continued.

Whether dealer markups continue or flat fees become the norm, Metrey attempted to emphasize that neither choice eliminates the potential for dealer discretion.

“As long as dealers have multiple finance source partners who are competing with each other, you’re not going to eliminate dealer discretion,” Metrey said. “You may shift the exercise of it, but whether it’s on the buy rate, the wholesale buy rate or flat fees, or anything else, as long as you have multiple finance sources competing for the dealers’ business and the dealer decides who is the one they send the paper to, you have an exercise in discretion.

“In this arena, our hope is that bureau will not focus its effort on the false hope that you can eliminate discretion,” he added.

Earlier during the hearing, Metrey also attempted to explain what the auto financing industry thrives already thanks to the structures currently in place.

“Once you really look at how (auto finance) compares to other asset classes, if you look at asset-backed securities, look at delinquencies, look at defaults, it is exceeding strong because it’s based on an extremely strong underwriting model,” Metrey said. “They’re not looking at speculation that the collateral will increase in value. You’re looking primarily at the repayment ability of the borrower. They’re honed in on precisely the right factor and the results are reflective of that fact.

“It is a highly competitive marketplace, and that’s a good and healthy thing,” he went on to say. “It benefits customers. It requires businesses that want to survive in that market to deliver superior customer service, to provide very competitively priced products and to have a very strong efficiency of operations.”

Reynolds and Reynolds this week launched of the Reynolds LAW Ohio F&I Library, a comprehensive catalog of standardized, legally reviewed finance and insurance documents available to dealers in the Buckeye State.

Officials highlighted the Reynolds LAW brand library of forms was developed jointly through a partnership between Reynolds Document Services and the Ohio Automobile Dealers Association (OADA).

"After partnering recently with a number of other state and regional dealer associations in the creation of LAW forms libraries, Reynolds is pleased to partner with the OADA in the same venture," said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services.

“The OADA and our other dealer association partners understand a LAW forms library can support a comprehensive retail management approach for dealers and can help dealers improve the car-buying experience for their customers,” Kirwan continued.

Kirwan insisted changing regulations for automobile dealers have increased the pressure to improve dealers' F&I operations. As a result, he noted dealers are seeking trusted ways to help their business meet current compliancy standards, improve efficiency and lower risk, and stay up-to-date with customer service trends.

The LAW Ohio F&I Library of documents was created and will be maintained by the combined expertise of Reynolds director of compliance Terry O'Loughlin, Reynolds’ AFIP certified compliance legal specialists and the OADA.

"The creation of the Ohio LAW library aligns with our interests of providing our members with credible ways to improve dealership operations, as well as improve the experience for their customers," said Tim Doran, president of the OADA. "We are pleased to partner with Reynolds in this endeavor."

Based in Dublin, Ohio, the OADA is a political, economic and educational association created for Ohio dealers, by Ohio dealers, and managed by Ohio dealers, with the mission to protect the interests and increase the value of automotive dealerships throughout the state. Visit the OADA online at www.oada.com.

Reynolds' LAW forms are available in all 50 states and Washington, D.C., and have been endorsed by a number of state automobile dealers associations and leading automotive finance institutions.

The flagship product of the LAW brand is the Reynolds LAW 553 Universal Retail Sale Contract. The Reynolds LAW 553 is available in a variety of languages and is regularly reviewed by industry experts to help keep pace with new legislative and regulatory developments.

Reynolds Document Services offers similar LAW brand forms libraries to dealers in a number of states, including California, Pennsylvania, West Virginia and Virginia.

In an exclusive interview with SubPrime Auto Finance News, Hudson Cook partner and former assistant director at the Consumer Financial Protection Bureau Rick Hackett offered quick-hitting analysis of the three main segments of the CFPB’s latest moves in connection with vehicle financing.

First, Hackett acknowledged the threshold the CFPB established in its newest supervisory proposal — a rule that would generally allow the bureau to supervise nonbank auto finance companies that make, acquire or refinance 10,000 or more loans or leases annually — is the general metric he and his agency team used as a starting point when they began to craft oversight guidelines nearly three years ago.

Hackett explained he arrived at that level based on dissecting information compiled by several sources, including the Royal Media’s “Big Wheels” report, Experian’s AutoCount and the National Automotive Finance Association.

According to the CFPB, companies that handle 10,000 or more contracts per year originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers. This group would include most if not all captive finance companies for domestic and foreign automakers such as Toyota Financial Services, Ford Motor Credit, American Honda Finance and Nissan Motor Acceptance Corp.

But in the phone conversation today, Hackett pointed out the threshold also would include indirect auto finance companies that often specialize in subprime financing such as Credit Acceptance, Exeter Finance, Consumer Portfolio Services and Westlake Financial Services.

“As the bureau noted, it’s a concentrated industry at the top, and then the other players drop off rather rapidly into the sub-1 percent of the market, so you had to draw a line somewhere,” Hackett said. “The threshold doesn’t strike me as surprising given the size of the groups the bureau has chosen to try to supervise in the past. It’s also consistent with the way industry has looked at itself in the past.”

Furthermore, Hackett referenced industry data when he mentioned that finance companies that purchase large amounts of paper from buy-here, pay-here dealers — operations such as CAR Financial — would be under the CFPB’s jurisdiction should the proposal come to be.

The CFPB indicated the proposed rule is open for comment for 60 days after the rule is published in the Federal Register.

Next, Hackett touched on the supervisory action the CFPB has taken that up until Wednesday was not made public.

Through announcements released only hours before its special field hearing set for today in Indianapolis, the CFPB also shared a supervision report that details the auto-lending discrimination that the bureau said it has uncovered at commercial banks.

Officials indicated the report highlights that the bureau’s supervisory actions against banks will result in about $56 million in redress for up to 190,000 consumers harmed by discriminatory practices.

While the CFPB didn’t offer much more specifics, Hackett said, “You should assume that’s more than one bank. It’s probably more than two or three because usually that kind of supervisory highlights come out after you’ve made a substantial dent when looking at banks on a confidential basis.”

Though still significant amounts, Hackett noted that a single commercial bank likely wasn’t hit with an individual penalty with the magnitude the CFPB and the Department of Justice levied on Ally Financial late last year. As finance company leaders might remember, regulators ordered Ally to pay $80 million in damages to harmed African American, Hispanic, and Asian and Pacific Islander borrowers, along with another $18 million in penalties.

The CFPB and DOJ determined that more than 235,000 minority borrowers paid higher interest rates for their vehicle loans between April 2011 and December of last year because of what federal officials described as “Ally’s discriminatory pricing system.”

Based on the depth of the newest CFPB enforcement actions, Hackett said, “One might take away that some of the other institutions that are composing that $56 million had less of a problem.”

Finally, the CFPB also released its highly anticipated white paper on evaluating and determining disparate impact.

In order to evaluate a finance company’s compliance with fair lending laws, CFPB explained its examination teams use a proxy methodology just as other federal supervisory agencies and many private companies do.

To proxy for race and national origin, exam teams rely on data associated with consumers’ last names and places of residence. Census Bureau data is first used to calculate the probability that an individual belongs to a specific race and ethnicity based on their last name. Exam teams then update that probability based on the demographics of the area in which the person resides again using Census Bureau data.

The CFPB is releasing a white paper which details the precise methodology the bureau uses to calculate these probabilities, and is also releasing the bureau’s computer code so that lenders can perform the same analysis that the bureau’s examination teams perform.

The white paper also reports on a study the bureau has conducted which finds that the integrated approach to building a proxy is more accurate than either surname or geographic data individually.

With so much information contained in the latest CFPB materials, Hackett said, “I will be the first one to confess that some of the metrics that are being used are very statistically sophisticated and go beyond the immediate first-read understanding of an average car guy like me.”

“I think one of the things we need to do is to talk to serious economists about the predictive quality of each of the metrics that they have used to assess (Bayesian Improved Surname Geocoding) against known race and ethnicity information from the mortgage side and how they stack up against the uses of proxies in other situations,” he continued.

“The takeaway is this gives us a lot of information to figure just how good or bad the bureau’s method really is. That’s a very important thing,” Hackett went on to say. “It also gives us very clear guidance, if we didn’t know already, on exactly what the bureau is doing.”